Lenders save the day for Edcon with R1,5bn bridge financing

Edcon won’t be liquidated just yet after securing R1,5 billion bridge financing from bondholders and bank lenders to assist the retail giant restructure its debt.

Edcon Holdings last week approached holders of notes due in 2018 and 2019, requesting them to modify the debt terms in order to raise the capital (in euros and US dollars) needed to make the business more liquid and streamlined as it attempts to reduce its astronomical debt.

“This financing has the consent of key majorities of our bondholders and bank lenders and has been provided by a group of those creditors, which means they are showing an acceptance for our advancing strategic restructuring initiatives, devised with the support of Bain Capital Private Equity and a confidence in the future of the group,” Edcon CEO Bernie Brookes said in a statement.

The bridge financing, which has been authorised by the SA Reserve Bank, will be made available in two payments of R750 million each, Edcon said.

Towards the end of last year, Edcon (the owners of brands such as Edgars, Boardmans, CNA and Jet) successfully negotiated the extension of due dates on loans amounting to R7,9 billion and secured additional funding of R1,85 billion which reduced the retailer’s debt by R4,5 billion.

The retail group was thrown a lifeline in April when its investors agreed to delay payments of almost 80% of R13,9 billion of bonds due until December.

By delaying the payment, Edcon effectively saved R1,6 billion which the company said would be used to improve its liquidity and enable it to continue with its operational turnaround strategy.

Edcon’s troubles started in 2007 when the group was acquired by US company Bain Capital Partners in a private equity deal worth R25 billion.

The retailer has battled to maintain a balance between investing in new stores, expanding the group and paying the interest on Bain Capital’s debt.

Edcon’s once strong discount business unit – namely Jet, Jet Mart and Legit – has underperformed in recent months and is placing additional pressure on the group.

Analyst Jean Pierre Verster of asset management company 36ONE previously said the unit could potentially be sold off.

“We are seeing pressure on Edcon’s discount segment where sales have decreased,” he was quoted telling Business Report.

“This is a concern because it has been a strong performer in the past… It has the highest probability of being sold to address Edcon’s debt.”

Earlier this year, credit ratings agency Standard & Poor’s said Edcon’s capital structure remained “unsustainable” in the long term as a result of the group’s massive debt and interest costs as well as unhedged exposure to foreign exchange losses.

Edcon also announced that it had deviated from the norm of releasing its annual results in June, opting to delay the release of its audited results until its debt restructuring process has been finalised.

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